NEWS RELEASE
Contact: Steven D. Jennerjohn
(920)-743-5551
Source: Baylake Corp.
BAYLAKE CORP. REPORTS FINANCIAL RESULTS FOR THE THREE AND NINE MONTHS ENDED
SEPTEMBER 30, 2003
Sturgeon Bay, Wisconsin -(Business Wire)--October 27, 2003
Baylake Corp. (OTC BB: BYLK), a bank holding company with $918.1
million in assets, reported net income of $5.9 million or $0.79 basic net income
per share for the nine months ended September 30, 2003, as compared to $6.3
million or $0.84 per share for the nine months ended September 30, 2002. The
decrease in net income was primarily due to decreased net interest income, an
increase in the provision for loan loss, and an increase in non-interest
expense. These were partially offset by an increase in non-interest income and a
reduction in income tax expense. Diluted net income per share was $0.78 for the
first nine months of 2003 compared to $0.83 a year earlier. Return on assets
(ROA) and return on equity (ROE) decreased for the first nine months of 2003, to
0.88% and 11.83%, respectively, from 0.97% and 13.62%, respectively, from the
same period one year ago.
For the nine months ended September 30, 2003, net interest income
decreased $1.1 million to $21.3 million when compared to the first nine months
of 2002 due primarily to a decline in net interest margin of 40 basis points for
the period offset somewhat by a $43.5 million increase in average
interest-earning assets. Net interest margin decreased 40 basis points to 3.58%
for the first nine months of 2003 when compared to the first nine months of
2002. The major contributing factor to the decline in net interest income was
net interest margin compression due to the asset sensitive position of Baylake
Corp's balance sheet. Baylake Corp, like its peer group banks, continues to be
challenged by maintaining growth in its net interest income in the current
interest rate environment of relatively stable low interest rates, because low
rates make it increasingly difficult to reduce rates on liabilities as
significantly as the reduction in the rates on assets. The increase in average
interest-earning assets was primarily attributable to substantial growth in loan
originations during the period.
Baylake Corp. recorded provisions for loan losses totaling $3.1 million
during the first nine months of 2003, as compared to $2.7 million for the same
period in 2002. The increase in the provision occurred primarily as a result of
an additional provision in the third quarter on a previously disclosed
commercial business loan. That loan, with a balance at September 30, 2003
totaling $4.2 million, has been recently restructured. Management continues to
review this loan credit monthly, in addition to its regular reviews of loans and
the allowance.
Non-interest income was $8.4 million during the first nine months of
2003, an increase of $1.5 million when compared to the same period last year.
The increase was primarily attributable to increases in: gain on sale of
subsidiary totaling $350,000, an increase in gains on sales of loans totaling
$866,000; and an increase in loan servicing fees totaling $998,000; offset by a
decrease in other income totaling $313,000 and a decrease in securities gains of
$511,000.
For the nine months ended September 30, 2003, non-interest expense
increased $662,000 over the same period last year. Personnel and benefit expense
increased approximately $673,000 due to additional staffing and normal salary
increases as well as significant increases in costs related to health care
insurance. Occupancy and equipment expense increased $25,000 as a result of
expansion in existing markets and costs related to the modernization of various
facilities. Data processing expenses increased $39,000, a result of increased
customer volume. Expenses on other real estate owned increased $47,000, the
result of increased holding costs relative to these properties and losses taken
upon sale of various properties during the nine months ended September 30, 2003.
Income tax expense decreased $358,000 for the nine months ended
September 30, 2003 when compared to the same period last year, the result of
decreased taxable income.
Baylake Corp. reported net income of $2.2 million for the three months
ended September 30, 2003, an increase of $27,000, or 1.2%, for the same period
in the prior year. The increase in net income resulted from an increase in
non-interest income and a reduction in the provision for loan loss offset
partially by decreased net interest income and an increase in non-interest
expense.
Net interest income for the three months ended September 30, 2003 was
$7.6 million compared to $7.8 million for the same period a year earlier. Net
interest income decreased as a result of a reduction in net interest margin of
32 basis points to 3.74% offset somewhat by an increase in average earning
assets amounting to $45.7 million.
Provisions for loan losses of $1.2 million were recorded for the three
months ended September 30, 2003 compared with $1.7 million for the same period
in 2002. Although a reduced provision for loan losses occurred during the
quarter compared to a year earlier, the provision for loan losses still remained
high relative to peer. During the quarter ended September 30, 2003, a downgrade
of the previously discussed loan credit occurred amounting to an additional
$800,000 in loan loss provision for the period out of the $1.2 million expensed.
Non-interest income for the three months ended September 30, 2003
increased $88,000 to $3.1 million primarily due to increased gains on sales of
loans amounting to $267,000 and increased loan servicing fees totaling $428,000
offset to a lesser degree by decreased other income of $78,000 and a decrease in
securities gains of $511,000.
For the three months ended September 30, 2003, non-interest expense
increased $328,000 from the three months ended September 30, 2002 to $6.4
million. Personnel and benefit expense increased $132,000 as a result of
additional staffing and benefit costs. Other occupancy and equipment expense
increased $62,000. Expenses from the operation of other real estate owned
increased $120,000. Other operating expense increased $6,000.
For the three months ended September 30, 2003, income tax expense
increased $22,000 to $831,000, the result of increased taxable income.
Total assets for Baylake Corp. increased 1.5% during the first nine
months of 2003 to $918.1 million at September 30, 2003 when compared to total
assets of $904.7 million at December 31, 2002. Total loans increased 1.2% during
the first nine months of 2003 to $674.1 million at September 30, 2003, while
deposits during the period increased 1.8% to $753.6 million. Total shareholders'
equity increased 4.1% for the first nine months of 2003 to $68.1 million at
September 30, 2003 as compared with $65.4 million at December 31, 2002.
The allowance for loan losses increased $1.2 million to $12.6 million
during the nine months ended September 30, 2003. During the first nine months of
2003, Baylake Corp. had net loan charge-offs totaling $1.9 million. The ratio of
allowance for loan losses to total loans was 1.87% at September 30, 2003, as
compared to 1.72% at December 31, 2002. Non-performing loans totaled $19.5
million and $22.1 million at September 30, 2003 and December 31, 2002,
respectively. The ratio of allowance for loan losses to non-performing loans was
64.8% and 51.7% at September 30, 2003 and December 31, 2002, respectively.
Foreclosed assets, net, at September 30, 2003 decreased $4.1 million
from December 31, 2002 primarily as the result of a sale in early February of a
commercial property, which was previously deeded over to the bank and organized
as a operating subsidiary of Baylake.
Despite the relatively high level of non-performing loans at quarter's
end, Baylake Corp. believes the balance of the allowance for loan loss at
September 30, 2003 is presently sufficient to absorb loan
losses inherent in the portfolio, although future adjustments to the allowance
may be necessary based on changes in the performance of the loan portfolio or in
economic conditions and the impact that these changes, if any, may have on the
ability of borrowers to continue to service or repay outstanding credits and on
the value of the underlying collateral securing these credits.
Capital resources for the nine-month period ended September 30, 2003
improved by $2.7 million. Baylake Corp. anticipates that currently it has
resources available to meet its commitments. At September 30, 2003, Baylake
Corp. had $60.4 million of established lines of credit with nonaffiliated banks,
of which $7.2 million was outstanding at September 30, 2003.
Baylake Corp., headquartered in Sturgeon Bay, Wisconsin, is the bank holding
company for Baylake Bank. Through Baylake Bank, the Company provides a variety
of banking and financial services from 26 financial centers located throughout
Northeast and Central Wisconsin, in Brown, Door, Green Lake, Kewaunee,
Manitowoc, Outagamie, Waupaca, and Waushara Counties.
The following appears in accordance with the Private Securities Litigation
Reform Act of 1995:
This news release contains forward-looking statements about the
financial condition, results of operations and business of Baylake Corp.
Forward-looking statements can be identified by the fact that they do not relate
strictly to historical or current facts. They often include the words "believe,"
"expect," "anticipate," "intend," "plan," "estimate" or words of similar
meaning, or future or conditional verbs such as "will," "would," "should,"
"could" or "may."
Forward-looking statements, by their nature, are subject to risks and
uncertainties. A number of factors, many of which are beyond the control of
Baylake Corp., could cause actual conditions, events or results to differ
significantly from those indicated by the forward-looking statements. This press
release, and the most recent annual and quarterly reports filed by Baylake Corp.
with the Securities and Exchange Commission, including its Form 10-Q for the
quarter ended June 30, 2003 and Form 10-K for the year ended December 31, 2002,
describe some of these factors, including certain credit, market, operational,
liquidity and interest rate risks associated with the company's business and
operations. Other factors include changes in general business and economic
conditions, world events (especially those which could affect our customers'
tourism-related businesses), competition which among other things affects the
demand for our products and services and our customers' ability to repay loans,
fiscal and monetary policies and the possibilities of changes in laws affecting
financial institutions as well as on customers' businesses.
Forward-looking statements speak only as of the date they are made, and
Baylake Corp. does not undertake to update forward-looking statements to reflect
circumstances or events that occur after the date the forward-looking statements
are made.
Baylake Corp. and Subsidiaries
SUMMARY FINANCIAL DATA
The following tables set forth selected consolidated financial and other data
for Baylake Corp. at the dates and for the periods indicated. The selected
consolidated financial and other data at September 30, 2003 and at and for the
three and nine months ended September 30, 2003 has not been audited but in the
opinion of management of Baylake Corp. reflects all necessary adjustments for a
fair presentation of results as of the dates and for the periods covered.
<Table>
<Caption>
AT AT AT
SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30,
2003 2002 2002
------------- ------------- -------------
(DOLLARS IN THOUSANDS)
SELECTED FINANCIAL CONDITION DATA (AT END OF PERIOD):
Total assets ......................................................... $ 918,091 $ 904,656 $ 905,363
Investment securities(1) ............................................. 171,312 151,366 166,233
Federal funds sold ................................................... 0 0 0
Total loans .......................................................... 674,074 665,887 652,363
Total deposits ....................................................... 753,556 740,324 735,704
Borrowings(2) ........................................................ 73,376 75,056 80,779
Notes payable and subordinated debt .................................. 53 106 106
Guaranteed preferred beneficial interest in the company's
junior subordinated debt ............................................. 16,100 16,100 16,100
Total shareholders' equity ........................................... 68,080 65,400 64,474
Non-performing loans, net of discount(3)(4) .......................... 19,506 22,088 22,553
Non-performing assets, net of discount(3)(4) ......................... 20,865 24,978 25,193
</Table>
<Table>
<Caption>
AS OF AND FOR THE AS OF AND FOR THE
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
----------------------------- -----------------------------
2003 2002 2003 2002
------------ ------------ ------------ ------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
SELECTED INCOME DATA:
Total interest income ......................................... $ 11,951 $ 13,287 $ 35,713 $ 39,169
Total interest expense ........................................ 4,341 5,524 14,396 16,793
------------ ------------ ------------ ------------
Net interest income ........................................... 7,610 7,763 21,317 22,376
Provision for loan losses ..................................... 1,212 1,654 3,137 2,700
------------ ------------ ------------ ------------
Net interest income after provision for loan losses ........... 6,398 6,109 18,180 19,676
Total non-interest income ..................................... 3,055 2,967 8,443 6,986
Total non-interest expense .................................... 6,381 6,053 18,492 17,830
------------ ------------ ------------ ------------
Income before income tax ...................................... 3,072 3,023 8,131 8,832
Income tax provision .......................................... 831 809 2,197 2,555
------------ ------------ ------------ ------------
Net income .................................................... $ 2,241 $ 2,214 $ 5,934 $ 6,277
============ ============ ============ ============
PER SHARE DATA:(5)
Net income per share (basic) .................................. $ 0.30 $ 0.30 $ 0.79 $ 0.84
Net income per share (diluted) ................................ 0.30 0.30 0.78 0.83
Cash dividends per common share ............................... 0.13 0.12 0.39 0.36
Book value per share .......................................... 8.99 8.62 8.99 8.62
PERFORMANCE RATIOS:(6)
Return on average total assets ................................ 0.97% 0.99% 0.88% 0.97%
Return on average total shareholders' equity .................. 13.09 13.80 11.83 13.62
Net interest margin(7) ........................................ 3.74 4.06 3.58 3.98
Net interest spread(7) ........................................ 3.47 3.83 3.32 3.71
Non-interest income to average assets ......................... 1.32 1.33 1.25 1.08
Non-interest expense to average assets ........................ 2.77 2.71 2.73 2.76
Net overhead ratio(8) ......................................... 1.44 1.38 1.48 1.68
Efficiency ratio .............................................. 58.18 54.49 60.22 58.58
Average loan-to-average deposit ratio ......................... 89.53 90.43 90.91 92.60
Average interest-earning assets to average interest-bearing
liabilities ................................................... 112.90 108.44 111.28 109.31
ASSET QUALITY RATIOS:(3)(4)(6)
Non-performing loans to total loans ........................... 2.89% 3.32% 2.89% 3.32%
Allowance for loan losses to:
Total loans .............................................. 1.87 1.43 1.87 1.43
Non-performing loans ..................................... 64.77 41.32 64.77 41.32
Net charge-offs to average loans .............................. 0.86 0.65 0.38 0.29
Non-performing assets to total assets ......................... 2.27 2.78 2.27 2.78
</Table>
<Table>
CAPITAL RATIOS:(6)(9)
Shareholders' equity to assets ................................ 7.42% 7.12% 7.42% 7.12%
Tier 1 risk-based capital ..................................... 9.95 9.84 9.95 9.84
Total risk-based capital ...................................... 11.20 11.09 11.20 11.09
Leverage ratio ................................................ 8.47 8.15 8.47 8.15
RATIO OF EARNINGS TO FIXED CHARGES:(10)
Including deposit interest .................................... 1.71x 1.55x 1.56x 1.53x
Excluding deposit interest .................................... 4.30 3.63 3.79 3.31
OTHER DATA AT END OF PERIOD:
Number of banking facilities .................................. 26 26 26 26
Number of full-time equivalent employees ...................... 300 289 300 289
</Table>
- ----------
(1) Includes securities classified as held-to-maturity and available for
sale.
(2) Consists of Federal Home Loan Bank advances, federal funds purchased
and collateralized borrowings.
(3) Non-performing loans consist of non-accrual loans, guaranteed loans 90
days or more past due but still accruing interest and restructured
loans. Non-performing assets consist of non-performing loans and other
real estate owned.
(4) The decrease in non-performing assets during the nine months ended
September 30, 2003 was due, in large part, to the sale of bank's
operating subsidiary (deeded previously to the bank in early 2002) in
early February 2003 in addition to a slight decrease in non-accrual
loans.
(5) Earnings and dividends per share are based on the weighted average
number of shares outstanding for the period.
(6) With the exception of end of period ratios, all ratios are based on
average monthly balances and are annualized where appropriate.
(7) Net interest margin represents net interest income as a percentage of
average interest-earning assets, and net interest rate spread
represents the difference between the weighted average yield on
interest-earning assets and the weighted average cost of
interest-bearing liabilities.
(8) Net overhead ratio represents the difference between noninterest
expense and noninterest income, divided by average assets.
(9) The capital ratios are presented on a consolidated basis
(10) For purposes of calculating the ratio of earnings to fixed charges,
earnings consist of income before taxes plus interest and rent expense.
Fixed charges consist of interest and rent expense.